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Guest Post: Another Reason for Stocks To Tank In 2012: Jobs
Submitted by Charles Hugh Smith from Of Two Minds
Another Reason for Stocks to Tank in 2012: Jobs
Though nobody seems to notice, stock prices are correlated to employment, which is trending down.
The Federal Reserve would have you believe that Monday morning ramp-and-camp and rumor-mill rallies in the last five minutes of trading are signs of a healthy Bull market. Or you can consider the reality of these charts. Not unsurprisingly, employment is correlated to the stock market. If lots of people have stable fulltime work, then they're earning enough money to generate a surplus that flows into the market via IRA and 401K retirement plans and other accounts.
Conversely, if few people have stable fulltime work, then few households can generate a surplus to put in the market. Instead, households short of cash will be removing money from their stock accounts.
Courtesy of longtime correspondent B.C., here is a chart of total employment per capita (in blue) and the stock market (in red), represented by the broad-based S&P 500 adjusted for inflation with the official metric of inflation, the CPI (consumer price index).
There is a wealth of information here not just about the stock market but also about employment, demographics and history. The great postwar Bull Market topped out in 1967 and coasted for a few years before falling in a 14-year Bear Market fueled by rising oil input costs and stagflation.
We can see how employment per capita declined during this period of stagflationary recession, that is, rising inflation coupled with a recessionary decline in employment.
Around 1982, the final deep recession of this period ended and a new era of financialization and globalization generated a 25-year long expansion of the GDP and employment. This rise in employment created a vast pool of surplus which created buying pressure in the stock market. Basic supply and demand--a relatively limited amount of stocks and a rising demand for them--led to higher stock prices.
Once employment topped out and began falling, so did stock prices in real terms, i.e. adjusted for the rise in consumer prices (CPI).
If we select employment per capita in the critical 35-44 years of age demographic, we find a very similar pattern.
Market pundits would have you believe that corporate profits are the driver of stock prices. They're wrong. Ultimately, it is demand for stocks that drive prices. If demand falters for whatever reason (for example, loss of faith in a rigged market), then stocks will decline in price as organic selling pressure (people liquidating positions and accounts for whatever reason, such as paying their mortgage and buying food now that the household is surviving on one shaky income) is a constant that only rises as the economy sheds stable fulltime employment.
The Federal Reserve has backstopped the stock market by destroying every other source of yield via zero-interest rates (ZIRP), effectively pushing anyone seeking a yield into long-term Treasury bonds or "risk-on" assets such as stocks and junk-rated corporate bonds.
But Fed manipulation cannot overcome the much larger forces of demographics and employment for long. Despite all the brave talk of the manipulators on the Board of the Federal Reserve, they've run out of manipulative tricks. With interest rates already near zero, their most basic toolbox is empty. Now they're reduced to bleating about all the phantom tools in their possession and playing around with long-term bond yields and mortgage rates-- interventions that cannot possibly create jobs or organic (i.e. real, unmanipulated) demand for stocks and housing.
Here is the reality of employment in the U.S.--it's down.
And here is the reality of employment compensation in the U.S.--it's falling off a cliff. This is unsurprising if we examine the employment statistics below the gamed "headline number" of unemployment. Roughly 18 million of the 140 million jobs are part-time, and another 17 million are self-employed people who are counted as "employed" even if they earned next to nothing. Millions more of these jobs are temporary, i.e. contract or free-lance, without benefits or stability. Many "permanent" jobs have have their hours of paid work slashed.
So there are far fewer jobs per capita, and the total compensation earned by the workforce is tanking. History is clear: the stock market rises when employment generates surpluses that create demand for stocks. When employment and compensation decline, buying pressure turns into selling pressure, and stocks tank.
At some point the Fed's Monday morning ramp-and-camps and the frenzied, psychotic rallies based on threadbare rumors in the last few minutes of trading will fail to overcome the organic selling--selling which ironically is rising as people lose faith in a market that is so transparently rigged.
Oh, and about those corporate profits: they've been based on two things that are ending: a declining U.S. dollar that magically inflates overseas earnings and a global economy based on unsustainable debt bubbles in Europe, the U.S. and China. As those bubbles pop, so too will corporate profits.
Price always boils down to supply and demand, and people whose compensation is dropping have neither the interest nor the means to buy stocks. Rather, those with any assets in the market are selling, cashing out to park the money in a less manipulated asset class or simply using the money to replace their lost income and borrowing power.
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The politicians and central bankers rode the baby boomers for all they were worth. I say in the coming decade we remember who the bastards are and follow them wherever they go and get payback.
http://www.youtube.com/watch?v=ybTufEiV6Mg
Teach them early
http://www.youtube.com/watch?v=aor2eMbXbhI&feature=related
jobs are overrated...we'll all just clean each others' houses
It will just degrade until we all shop & work at Walmart.
wage level = 1980
employment level = 1980
99% of Americans are still living like 1980
Oddly enough, that is how wealth used to be distributed throughout the economy in times past - by the productive employing the unproductive to perform services.
Now, the unproductive just use the guns of government to extract from the productive and collect the proceeds through EBT, UI and government-provided free/subsidised services.
When I grow up I want to be a banker.
in China?
cuz banker in US would mean paper factory worker.
I think they'll move to solve that unemployment problem real soon with the age-old solution- world war, battlefield USA. Take care of all kinds of problems like population reduction, wiping their books clean, starting a new system while no ones looking and more concerned with their own bombed house or just trying stay alive today and to avoid the UN troops roundup teams.
Just a hunch.
I really don't see any way out of the shit pile we've dug ourselves in except a massive war with tons of destruction which will create the need for rebuilding. Its sad but watching the news it seems like we're well on our way there.
Sad but true. Politicians always prefer war over facing thousands of starving peasants. Starvation they cause. Only I am not so sure the USA can take on China, Russia, and Germany?
Would Germany side with Russia? On the surface Germany is NATO. When the SHTF would they revert to their fascist roots?
If they reverted to their fascist roots, would they not side with the USA?
China will not align with Russia because China is a country with a large population and little oil whereas Russia is a country with 1/8 the population and a lot of oil. Plus, the two countries are right next to each other. China is going to covet Russia's resources sooner rather than later.
China (labor) + Iran (oil) + Russia (military)
+ Swiss (bankers)
WWIII
This time, there is no money to pay for it. No volunteers to fight it. No bullshit magic enough to sell it.
Posting after a break of about 2 months.. tell me if I have missed anything since Oct.
Europe's last known position in Oct 2011 - Twas a Hobson's choice.. Europe print's and suffers hyperinflation or does not print and collapses into a depression spiral both the choice impact the global economy..
The situation of the DEF chairman- Our balls are pinned to the wall and Merkozy hold the hammer.. ouch the wait for the blow hurts more than the blow..
HAS ANYTHING CHANGED SINCE I LAST POSTED ON ZH.. :) :)
TYLER DURDEN FOR PRESIDENT.
TYLER DURDEN FOR PRESIDENT.
We traveled another mile down the road heading towards the cliff. Not much pavement left.
Hoping Santa Claus is exempt from the European Austerity measures...
Roboooooooooooo. He said stocks were very cheap and when 2012 comes around there was going to be a long bull market.
Yeah, as the boomers retire and draw down their positions, well it won't matter much if politicians have insider info.
You don't need jobs in a money printing utopia,
Obama 2012!!!!!
Heh - yeah, who needs jobs? I mean, The Teleprompter is running around trying to convince anyone who is listening (probably about 1% of the electorate) that going deeper into hock to pay people to not work and to further demolish the solvency of "The Third Rail Of American Politics" actually creates jobs (http://campaign2012.washingtonexaminer.com/blogs/beltway-confidential/obama-more-jobs-jobless-benefits-keystone/244871). Bring-on the printing press, folks.
Add canned food and rice to your Christmas lists boys.
Just don't ask for 7 days worth.....
Or don't. More than seven days worth of food in your house, and you are under suspicion of being a terrorist. If that new law passes, you could end up locked away forever without a trial. If that law passes, it's seriously time to think about leaving the country, especially if you are wealthy. The wealth of the jews was stolen as they were declared enemies of the state, and they had no rights or recourse, just like all of us if this bill passes.
Add inflation to any chart on earnings and although the headline number is that there has been a slight decline over the past 10 years...it is far worse if you try to describe purchasing power of that meager $49K avg....probably back to the 50s...
Is it Jobs is dead or jobs are dead?
My iTablet is dead.
"Eyes melt, skin explodes - everybody dead!"
and then we become the Walking Dead...
Both-
Steve Jobs is dead and our jobs are dead.
good article with good insights....
I still know co-workers who are "all in" with index funds for their 401Ks. Seriously, how much money have they made with "buy and hold" over the last decade? They are simply cash cows for the likes of Goldman to farm for skimmed profits. The skimmers need a captive group to keep putting money in so Goldman can skim it, churn it and profit from it.
Piss on that, I bailout out of that 401K business a decade ago! Haven't lost a dime since, and actually made a bit. Would of made a lot more if I had the courage of my convictions and bought the gold I was considering.
looks good.
Household Net Worth Falls $2.45 Trillion on Stocks, Housing By Timothy R. Homan - Bloomberg: Dec 8, 2011 11:12 AM CT
http://www.bloomberg.com/news/2011-12-08/household-wealth-in-u-s-falls-a...
Very very bad news.
"Every Congressman, every Senator knows precisely what causes inflation...but can't, [won't] support the drastic reforms to stop it [repeal of the Federal Reserve Act] because it could cost him his job." -- Robert A. Heinlein, Expanded Universe
hey look, it is 3:15 again.
BS
Here comes the ramp up! 50 pts in less than a few mins.
Fucking bots.....Anyone heard the rumour yet??
I think they are trading on the rumor of a pending rumor.
lol probably...looks like its starting to pullback.....ooop......nevermind here we go again.....fucking yo yo
When the SHTF would they revert to their fascist roots?
Italians developed Fascism not Germany, and the world expects the USA to develop into a fully-fledged Fascist Society not Germany. It has a military-industrial-complex tied into Wall Street and an Imperial President as Commander of the Armed Forces as Fuehrer.......and of course quite a track record of "Cruise Missiles for Regime Change" funded by debt
Screw the basterds...I'm staying short into this close...
I'm long until 3:55, hope it works out.
I'm guessing it didn't work out so well...
2:00pm Thursday -Dagong lowered France’s sovereign rating to A+ from AA- and retained a negative outlook on the country.
WSJ
http://blogs.wsj.com/marketbeat/2011/12/08/sorry-france-youve-just-been-...
I remember Dagong Show rating something French a ways back..
http://www.youtube.com/watch?v=OR5BSTxRarg
Are you kidding me?
Millions on food stamps, unemployment and millions more not paying their mortgage has created the biggest consumer spending bonanza since 1999 - 2000.
On top of that, commodity prices have plunged this year, giving Joe Six a huge unexpected "tax cut".
Any wonder why the XRT has skied to 3-year highs and shopping mall REITS like SPG have rocketed from $28 to $120 in the middle of the worst economy in decades?
Last I checked - which was yesterday - gasoline was still up8% YOY in my area, and food is still way high. I mean, $5.50 for a jar of Miracle Whip? C'mon!
Butter, milk, veggies, fruit - everything higher YOY.
Robo Fail
Your mother says you have a minor role as a transgender prostitute in a porn film, huh?
I absolutly agree Robo, these years are the best years human civilization has ever experinced.
Only a fool, idiot, moron, or establishment shill could make that conclusion....Bulltard massacre today!
Are you drunk?
Who is buying and preventing Sp500 from closing below 61.80 level?
PPT
out at -99. hope i'm not early.
Last night - I got laid off from my job. They are replacing me with unpaid "work experience" students. Despite only paying me $10.50 an hour, and despite them making millions of dollars from grants and tax credits - they still want MORE. They have laid me off two weeks before Christmas, the day after they became eligible for all the tax credits and grants they will get for starting a business and hiring employee's.
This is the whole problem with the world - unlimited GREED and a system that rewards businesses with taxpayer funded handouts.
Sorry to hear about your bad news. Figure out a way to 'starve the beast' and make your own business....
Sucks. One hopes that nobody torch the place.
Aren't people outside the US allowed to buy US stocks?
And household net worth is back to Q1 1999. Thanks alot Federal housing policy!!!!!!!!!!!
http://confoundedinterest.wordpress.com/
I do not comment on trading as I do not trade in the markets. I need some of what Robo is smoking. Tax break please! Fuel has dropped but that is about it. Although your house is now worth less and less you still pay the original value, food prices are sky high and in alot of instances they have the same package but less contents. There was nor is a tax break for us working stiffs this year.
What's scary about that last chart is that it's an aggregate figure. We all know that almost all that money is going to a sliver of a percentage of people at the top. If you took out the top 10% of people represented in that chart, employee compensation as a percentage of GDP would make us all realize that war or revolution is the only thing that is, "Just around the corner".
"phantom tools"...is that anything like those "wonder weapons" that the Nazis were gonna use to win the war at the last moment? "Gotterdammerung"... more like the last gasp of a ratpack of criminals
Fascism: when Big Government and Big Business shake hands, and the little guy gets squashed in their grip
Thank goodness the Fed has lost its ability to lower interest rates any further, otherwise I'd be paying my bank to hold my money. We are absolutely up side down.
SP500 new downleg confirmed - bearish triangle chart at blog.
My long term indicators have continued to warn of USD strength and EURO weakness and these signals have increased since 2009. The overdue dollar rally should be substantial.
http://stockmarket618.wordpress.com
There are two aircraft carrier groups in the middle east and three on the way, jobs are not going to be a big issue by this time next week.